Principles And Practice of Double Entry

DOUBLE ENTRY BOOK KEEPING

The principle of double of double entry states that for every debit entry, there must be a corresponding credit entry and vice-versa. It is the foundation of book keeping.

Accounting attempts to record both effects of a transaction or event on the entity's financial statements. This is the application of double entry concept. Without applying double entry concept, accounting records would only reflect a partial view of the company's affairs. Imagine if an entity purchased a machine during a year, but the accounting records do not show whether the machine was purchased for cash or on credit. Perhaps the machine was bought in exchange of another machine. Such information can only be gained from accounting records if both effects of a transaction are accounted for.

Study has shown that many students failed accounts due to lack of indepth knowledge of the double entry principles. The principle operates on the basics that every financial transaction must have two aspects

DR = Receiver (receiving account)

CR = Giver (giving account)

Double entry also allows for the accounting equation (assets = liabilities + owner's equity) to always be in balance.

PROCEDURES FOR DOUBLE ENTRY

The following are the procedures for double entry practice:

The keeping of books of account.

The division of each book into separate accounts.

Each account is divided into two halves, left hand side (Dr) and right hand side (Cr)

All transactions must be recorded in two accounts, one account is debited and another account is credited.

The giver (giving account) is credited with and the value of whatever it receives and the receiver (receiving account) is debited with the same amount.

The majority of commercial transactions are termed credit transactions, which means that the transfer of ownership takes place before payment to the supplier i.e settlement is deferred to a future date. Example: Mr John bought goods but he did not pay until 3 months later.